JP Morgan is growing more bullish on the prospects for UK housebuilding stocks, citing growing optimism around government initiatives aimed at boosting the sector.
Barratt Redrow PLC (LSE:BTRW) has been specifically highlighted ahead of its Capital Markets Day on February 12, where more details on its strategic direction following its merger are expected.
After a difficult start to the year, with the sector down 10% due to wider economic concerns, UK housebuilders have rebounded 3% year-to-date.
This recovery has been supported by government rhetoric on increasing housing supply and speculation about potential demand-side stimulus—measures aimed at making it easier for buyers to afford homes.
One potential stimulus being discussed is the return of a Help to Buy scheme, following the government’s evaluation of its previous impact on homeownership, house prices, and value for money.
Additionally, there are reports that the Financial Conduct Authority (FCA) may relax mortgage affordability rules, making it easier for first-time buyers to secure loans.
However, JP Morgan notes that these discussions are still in early stages.
On the supply side, since its election victory in July, the government has introduced a series of reforms to unlock more housebuilding. These efforts are being closely monitored as developers navigate a challenging affordability environment.
JP Morgan also reviewed potential earnings momentum for housebuilders. Using Persimmon as an example, it modelled a scenario where operating profit—the profit a company makes from its core business—could rise between 72% and 127% by 2029 if profit margins recover to 20%, well below their previous peak of 30%.
JP Morgan maintains an 'overweight' ratings on Barratt Redrow, Bellway, and Persimmon, believing they are well-positioned to benefit from potential policy changes and continued supply-side support.